Ch 5: Basis Periods

Question 1

List 4 examples of ceasing in trade

Answer 1

Retriting
Selling
Incorporating
Closing business

Question 2

What do you do in the final tax year?

Answer 2

In the final tax year tax ALL accounting profits ending in the final tax year AND deduct any overlap

Question 3

What are the 3 conditions of a change of year end?

Answer 3

• Notify HMRC by 31 Jan after tax year in which change is made
• Accounting period can never exceed 18mths
• Only one change every five years (unless genuine commercial reason)

Question 4

How do you approach questions with a change of year end (4 steps)?

Answer 4

1. Identify the ‘year of change’ - this is the first tax year in which there is not exactly one 12 month period of account ending in the year
2. For all tax years prior to the YOC, calculate assessable profits as normal
3. For tax years after the YOC, tax the 12 months ending on the new accounting year end
4. Identify the untaxed gap - at least 12 months, could be longer

Question 5

How do you tell if there will be a relief or creation of overlap?

Answer 5

Changing the y/e closer to April = relieve original overlap

Changing the y/e further away from April = create additional overlap